close solutoin list

Stock transactions for corporate expansion On December 1 of the current year, the following accounts and their balances appear in the ledger of Latte Corp., a coffee processor: Preferred 2% Stock, $50 par (250,000 shares authorized. 80,000 shares issued) $ 4,000,000 Paid-In Capital in Excess of Par—Preferred Stock 560,000 Common Stock, $35 par (1,000,000 shares authorized, 400,000 shares issued) 14,000.000 Paid-In Capital in Excess of Par—Common Stock 1,200,000 Retained Earnings 180,000.000 At the annual stockholders' meeting on March 31, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $11,000,000. The plan provided (a) that a building, valued at $3,375,000, and the land on which it is located, valued at $1,500,000, be acquired in accordance with preliminary negotiations by the issuance of 125,000 shares of common stock valued at $39 per share, (b) that 40,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that the corporation borrow $4,000,000. The plan was approved by the stockholders and accomplished by the following transactions: May 11. Issued 125,000 shares of common stock in exchange for land and a building, according to the plan. 20 Issued 40,000 shares of preferred stock, receiving $52 per share in cash. 31 Borrowed t4.000.000 from Laurel National, giving a 5% mortgage note. Instructions Journalize the entries to record the May transactions.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 13, Problem 13.2APR
Textbook Problem

Stock transactions for corporate expansion

On December 1 of the current year, the following accounts and their balances appear in the ledger of Latte Corp., a coffee processor:

Preferred 2% Stock, $50 par (250,000 shares authorized. 80,000 shares issued) $ 4,000,000
Paid-In Capital in Excess of Par—Preferred Stock 560,000
Common Stock, $35 par (1,000,000 shares authorized, 400,000 shares issued) 14,000.000
Paid-In Capital in Excess of Par—Common Stock 1,200,000
Retained Earnings 180,000.000

At the annual stockholders' meeting on March 31, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $11,000,000.

The plan provided (a) that a building, valued at $3,375,000, and the land on which it is located, valued at $1,500,000, be acquired in accordance with preliminary negotiations by the issuance of 125,000 shares of common stock valued at $39 per share, (b) that 40,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that the corporation borrow $4,000,000. The plan was approved by the stockholders and accomplished by the following transactions:

May 11. Issued 125,000 shares of common stock in exchange for land and a building, according to the plan.
20 Issued 40,000 shares of preferred stock, receiving $52 per share in cash.
31 Borrowed t4.000.000 from Laurel National, giving a 5% mortgage note.

Instructions

Journalize the entries to record the May transactions.

Expert Solution
To determine

Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.


Preferred stock:
The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

Par value: It refers to the value of a stock that is stated by the corporation’s charter. It is also known as face value of a stock.

Issue of common stock for non cash assets or services: Corporations often issue common stock for the services received from attorneys or consultants as compensation, or for the purchase of non cash assets such as land, buildings, or equipment.

To Journalize: The entries to record the May month transactions.

Explanation of Solution

Journalize the issuance of the stock in exchange for land and a building on May 11.

Date Account Titles and Explanation Debit ($) Credit ($)
May 11 Land 3,375,000
Building 1,500,000
      Common Stock (125,000 shares ×$35) 4,375,000

      Paid-in Capital in Excess of Par value –

      Common stock (Balancing figure)

500,000
(To record issuance of 125,000 common shares in exchange of land and building)

Table (1)

Description:

  • Land and building is an asset account. Both are acquired upon stock issuance. Therefore, debit Land and building account with the value of its purchase.
  • Common Stock is a stockholders’ equity account and the amount is increased due to issuance of common stock. Therefore, credit Common Stock account with the value of common stock.
  • Paid-in Capital in Excess of Par Value is a stockholders’ equity account and the amount is increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Par Value account with the excess value of land and building over the common stock value.

Record the issuance of preferred stock on May 20

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Chapter 13 Solutions

Accounting
Show all chapter solutions
Ch. 13 - A Dividends per share Reinhardt Furniture Company...Ch. 13 - Dividends per share Zero Calories Company has...Ch. 13 - Entries for issuing stock On May 23, Stoltz Realty...Ch. 13 - Entries for issuing stock On January 22, Zentric...Ch. 13 - Entries for cash dividends The declaration,...Ch. 13 - Entries for cash dividends The declaration,...Ch. 13 - Entries for stock dividends Pro-Builders...Ch. 13 - Entries for stock dividends Antique Buggy...Ch. 13 - Entries for treasury stock On January 31,...Ch. 13 - Entries for treasury stock On May 27, Hydro...Ch. 13 - Reporting stockholders' equity Using the following...Ch. 13 - Reporting stockholders' equity Using the following...Ch. 13 - Retained earnings statement Rockwell Inc. reported...Ch. 13 - Retained earnings statement None Cruises Inc....Ch. 13 - Earnings per share Financial statement data for...Ch. 13 - Earnings per share Financial statement data for...Ch. 13 - Dividends per share Imaging Inc., a developer of...Ch. 13 - Dividends per share Lightfoot Inc., a software...Ch. 13 - Entries for issuing par stock On October 31,...Ch. 13 - Entries for issuing no-par stock On February 12,...Ch. 13 - Issuing stock for assets other than cash On April...Ch. 13 - Selected stock transactions Alpha Sounds Corp., an...Ch. 13 - Issuing stock Willow Creek Nursery, with an...Ch. 13 - Issuing stock Work Place Products Inc., a...Ch. 13 - Entries for cash dividends The declaration,...Ch. 13 - Entries for stock dividends Senior Life Co. is an...Ch. 13 - Effect of stock split Copper Grill Restaurant...Ch. 13 - Effect of cash dividend and stock split Indicate...Ch. 13 - Selected dividend transactions, stock split...Ch. 13 - Treasury stock transactions Lava Lake Inc. bottles...Ch. 13 - Treasury stock transactions Lawn Spray Inc....Ch. 13 - Treasury stock transactions Biscayne Bay Water...Ch. 13 - Reporting paid-in capital The following accounts...Ch. 13 - Stockholders' Equity section of balance sheet The...Ch. 13 - Stockholders' Equity section of balance sheet...Ch. 13 - Retained earnings statement Sumter Pumps...Ch. 13 - Stockholders' Equity section of balance sheet List...Ch. 13 - Statement of stockholders' equity The...Ch. 13 - EPS Junkyard Am, Inc., had earnings of 516,000 for...Ch. 13 - EPS Pacific Gas and Electric Company is a large...Ch. 13 - EPS Caterpillar Inc. and Deere Company are two...Ch. 13 - Dividends on preferred and common stock Pecan...Ch. 13 - Stock transactions for corporate expansion On...Ch. 13 - Selected stock transactions The following selected...Ch. 13 - Entries for selected corporate transactions Morrow...Ch. 13 - Entries for selected corporate transactions...Ch. 13 - Dividends on preferred and common stock Yosemite...Ch. 13 - Stock transaction for corporate expansion Pulsar...Ch. 13 - Selected stock transactions Diamondback Welding ...Ch. 13 - Entries for selected corporate transactions Nav-Go...Ch. 13 - Entries for selected corporate transactions West...Ch. 13 - Ethics in Action Tommy Gunn is a division manager...Ch. 13 - Ethics in Action Lou Hoskins and Shirley Crothers...Ch. 13 - Communication Motion Designs Inc. has paid...Ch. 13 - Ethics in Action Bernie libbers, the CKO of...Ch. 13 - Issuing stock Epstein Engineering Inc. began...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
Describe Enterprise Risk Management (ERM).

Accounting Information Systems

Describe the two spans of management.

Foundations of Business (MindTap Course List)

Whats the difference between a call for sinking fund purposes and a refunding call?

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

What are the main purposes of internal controls over cash receipts?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

REGRESSION AND RECEIVABLES Edwards Industries has 320 million in sales. The company expects that its sales will...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is meant by catering theory, and how might it impact a firm's dividend policy?

Fundamentals of Financial Management (MindTap Course List)